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Wall Street shares closed lower at the end of a choppy session, capping the month of February with a small decline overall as investors fretted interest rates may remain higher for longer than previously thought.
The benchmark S&P 500 shed 0.3 per cent on Tuesday taking its total monthly decline to 2.6 per cent. That fall followed a gain of more than 6 per cent for the blue-chip index in January, and came as a series of economic data pointed to signs of persistent inflation.
The Nasdaq Composite slipped 0.1 per cent on the final day of February. The tech-heavy index ended the month 1.1 per cent lower, after a more than 10 per cent leap in January.
Last Friday, US stocks recorded their biggest weekly fall in two months.
In government debt markets, the yield on 10-year US Treasuries was broadly steady at 3.93 per cent. The yield on the two-year benchmark, which is more sensitive to monetary policy, rose 0.03 percentage points to 4.82 per cent, its highest point since July 2007.
The recent peak for the two-year yield coincides with a widening of the gap between itself and the yield on the 10-year note. The spread, known as the yield curve, has reached minus 0.86 per cent, which is the deepest level since 1981. That negative reading, or “inverted” yield curve, is regarded as a signal of an impending recession.
Markets are in a “blackout period” ahead of the release of US labour market data next month, said Steven Blitz, chief US economist at TS Lombard.
“There’s nothing to trade on except kernels of data but the February employment numbers are more important than inflation numbers as employment is the thing that leads to inflation — and since goods inflation is higher now, we need more downward pressure on services, which wages are a big part of.”
European equities gave up early gains to trade slightly lower on the day. The region-wide Stoxx 600 and French Cac 40 closed down 0.1 per cent, while Germany’s Dax ended 0.1 per cent higher.
The moves followed stronger than expected inflation data from France and Spain, two of the eurozone’s largest economies.
The readings added to investors’ concerns that the European Central Bank will need to extend its aggressive policy of raising interest rates for longer to tame inflation. Yields on European government bonds rose as prices fell, with the yields on German Bunds hitting a fresh 12-year high.
Investors in the swaps market expect the ECB to raise interest rates to just below 4 per cent by the end of the year from their current 2.5 per cent.
“The question is for how long interest rates will increase and to what level, as well as if there will be a spreading effect from the labour market,” said Mabrouk Chetouane, head of global market strategy at Natixis Investment Managers.
The dollar index, which measures the greenback against a basket of six peers, added 0.3 per cent, while the euro slipped 0.3 per cent against the US currency. Sterling edged 0.2 per cent lower, after rising 1 per cent on Monday as the UK and EU reached a deal on post-Brexit trading rules.
Brent crude rose 1.7 per cent to $83.87 per barrel, while WTI, the US equivalent, gained 1.6 per cent to $76.86 per barrel.
Hong Kong’s Hang Seng index fell 0.8 per cent, while China’s CSI 300 rose 0.6 per cent.
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